There's been a raft of rig-related news bites over the past few days, so let's dive right in and see what we can divine about the state of the drilling market, shall we?
A welterweight treads water
Rowan Companies (NYSE:RDC), the driller/rig manufacturer that was almost divided during the heady days of the oil/gas bull market, has held up about as well as could be hoped given the dreary drilling environment. Of course, a greater-than-50% share price plunge over the past six months is hardly "holding up," and is a harder hit than those taken by more deepwater-levered players like Pride International (NYSE:PDE).
I still think Rowan's got great depth for a shallow-water driller, and its premium jackups have continued to secure somewhat attractive contracts with folks like Pemex. Rowan signed one recent two-year stint at a dayrate in the $150,000 range, which is some 20% lower than the Gorilla IV's prior engagement with W&T Offshore, and only around half of what ExxonMobil (NYSE:XOM) and EnCana (NYSE:ECA) agreed to pay for the comparable Gorilla III rig for work offshore eastern Canada. Still, this gig will keep the lights on.
In addition to this recent drilling deal, Rowan subsidiary LeTourneau Technologies has secured a $185 million order for two newbuild jackups. LeTourneau, if you didn't know, built the very first jackup back in the 1950s. Anyway, these two kits are to be assembled at one of Petrobras' (NYSE:PBR) yards in Brazil.
This deal is a welcome development for Rowan, which has gotten the rug pulled out from under it lately by order cancellations and suspensions by financially fragile counterparties.
From riches to rags
Here's another somewhat troubling data point in the ongoing drilling rig drama. Atwood Oceanics (NYSE:ATW) announced on Monday that it can't find a home for its 2,000-foot semisubmersible, the Atwood Southern Cross. This rig, which is several thousand feet shy of deepwater-rated depth, was last pulling down a shockingly high $352,000 dayrate with Malaysian oil honcho Petronas in its work offshore Mauritania. That job ended in mid-December, however, and the rig has been unemployed ever since. Atwood now tells us not to expect anything before July.
You know that buyer's strike I talked about in the onshore market? I think that's exactly what's going on here. The bid/ask spread between E&Ps and oil service contractors is still wide, and the operators are now delaying further commitments until they can get better rates. I imagine there's a certain degree of payback involved here as well, given the deteriorating customer satisfaction ratings so well-documented by EnergyPoint Research throughout the capacity-constrained up-cycle.
Hercules' gar(b)age sale
Word got out Monday that Hercules Offshore is attempting to offload some of its least desirable drilling rigs with the assistance of broker Bassoe Offshore. Interestingly, Bassoe's venture capital arm made an investment in Hercules back in 2000, so it must be about as familiar with these assets as anyone.
The 16 rigs -- six jackups and 10 barge rigs -- are "old and tired," with only two seeing major refurbishments in the 1990s. Why anyone would step in and buy these assets from Hercules now, rather than wait for the potential to pick them up out of bankruptcy court somewhere down the road, is beyond me. Of course, it's possible Hercules will hang on and make it through to the next drilling bonanza mostly intact. The firm's debt load is just harrowing compared to the quality of the firm's assets, in my view.
A drilling damsel in distress
Speaking of debt, Norwegian Seadrill made an interesting move the other day, scooping up a chunk of the high-yield debt of fellow Norwegian drilling outfit Petromena. I've been wary of Seadrill's financial engineering, reminding me in many ways of billionaire John Fredriksen's other baby, Frontline (NYSE:FRO). So far, the swashbuckler has remained afloat, and it's managing to exploit less well-capitalized companies' ailments. By picking up this debt, Seadrill gets a nice option on the deepwater rigs secured by the loan.
